The economic tumult sparked by the coronavirus pandemic wreaked havoc on the commercial property sector, with retailers going out of business, office tenants trying to break leases or significantly reduce their rents, and residents in multifamily developments seeking forbearance on mortgages and rent. By extension, many of the real estate investment trusts (REITs) focused on those properties have also been hurting, with stock prices that are mostly below where they began the year. 

Last month saw the first REIT to declare bankruptcy – CBL & Associates Properties Inc. (CBL), which filed for Chapter 11 protection – in more than 10 years. The increased surge in coronavirus cases and warnings of additional lockdowns if the situation cannot be mitigated is certainly not welcome news for REITs. 

However, there are still REITs that managed to weather this year’s storms and are poised to enter 2021 with great potential. Stocks such as Annaly Capital Management (NLY), Highwood Properties (HIW) and Urstadt Biddle Properties Inc. (UBA) deserve to be on your watchlist.

Annaly Capital Management (NLY)

New York City-headquartered NLY is one of the nation’s largest mortgage REITs, focused on both residential and commercial properties, and it is also active in middle-market lending and purchasing mortgage-backed securities guaranteed by U.S. government agencies. It boasts $14 billion in market capitalization.

The pandemic has certainly not helped NLY’s stock performance – its stock price has been down by more than 14% this year. NLY’s current trading price of $8.30 is closer to its 52-week high of $10.50 than its 52-week low of $3.51. 

Our proprietary POWR Ratings current rate is as “Buy,” with an “A” Trade Grade, a “B” Buy & Hold Grade, and “A” Peer Grade and a “D” Industry Rank. In the REITs – Mortgage category, it ranks #4 of 31 stocks.

As a mortgage REIT, NLY does not own properties – unlike many REITs focused on particular commercial property segments, NLY was not tasked with renegotiating leases or chasing down rent payments this year. And its focus on government-backed securities has kept it away from the chaos that permeated the private-label securities sector this year. Due to this structure, it has avoided much of the trauma that other REITs have absorbed and should continue in the post-pandemic period without hiccups.

Highwood Properties (HIW)

The Raleigh, North Carolina-headquartered HIW focuses on office properties in some of the Southeast’s major urban markets. Not unlike NLY, it has also seen its stock price drop this year, in this case a decline of over 13%.

HIW’s stock has been trading 28% over the last month and is currently at $40.95, somewhere in between its 52-week high of $52.76 and its 52-week low of $25.10. Our POWR Ratings currently rate HIW as “Buy,” with a “B” Trade Grade and “A” Peer Grade. In the REITs – Office category, it ranks #4 out of 15 stocks.  

HIW is clearly eager to enter the new year in a stronger position, jettisoning its lesser endeavors to focus on larger and more lucrative projects. In the past month, the company has sold non-core properties in Greensboro and Memphis for combined gross proceeds of $127.5 million, with the goal of freeing up capital to invest in larger markets. One of its proposed projects is a 40-story development in downtown Raleigh – the company recently filed a rezoning request on a parcel currently zoned for no more than 12 stories. It also scored a major tenant for its Midtown West office development in Tampa when South State Bank signed a lease to have its West Florida regional headquarters in a 10,000-square-foot space.

Urstadt Biddle Properties Inc. (UBA)

UBA is a Greenwich, Connecticut-based REIT that was founded in 1969 and encompasses 81 properties, of which 74 are shopping centers in the affluent suburbs surrounding New York City; the other properties include small office buildings and a child care center. Although the company has an impressive 26 consecutive years of increasing dividends, its stock price recorded a 37.50% decline over the past year. 

Among REITs, the self-administered UBA is somewhat under-the-radar, with a market capitalization of $542 million. Company insiders own $44 million in shares, with CEO Willing Biddle possessing 6.4% of the total shares outstanding.

While UBA may not be the flashiest of stocks, the company is in the right place at the right time. As Biddle pointed out in announcing Q3 results in September 84% of its properties measured by square footage “are anchored by grocery stores, wholesale clubs or pharmacies, and these businesses have remained open and thriving during this crisis, proving how critical they are to the communities that they serve.” Biddle added that 96% of its tenant businesses are open and operational.

Furthermore, the company is focused in suburban markets and has seen a wave of new residents eager to escape the economic havoc and rising crime that sliced up the Big Apple this year, and the rising populations in these localities have brought a new infusion of foot traffic into UBA’s retail properties. This solid footing will help secure the company as its region begins to move beyond the pandemic. 

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NLY shares were trading at $8.32 per share on Friday afternoon, up $0.13 (+1.59%). Year-to-date, NLY has declined -1.81%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series.  He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...

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